Earnest money is a deposit (typically 1–2% of the purchase price) made by the buyer when submitting an offer. It demonstrates good faith to the seller and is applied toward the down payment or closing costs at closing. You can get it back if you cancel within a contingency period.
Watch: What Is Earnest Money?
Beau explains exactly how earnest money works, when you can get it back, and how to use it strategically in a competitive offer.
How Earnest Money Works
When you submit an offer on a home, you agree to put down a good-faith deposit — earnest money. Here’s the flow:
- Offer accepted — your earnest money (e.g., $5,000) is due within 1–3 business days
- Deposited into escrow — held by the title company, not the seller
- Contingency period — you can cancel and recover the deposit during this window
- Contract goes “hard” — after contingencies expire, your deposit is at risk if you back out
- Closing day — the deposit is credited toward your down payment or closing costs
When Your Earnest Money Is Protected
Your deposit is fully refundable if you cancel due to:
- Inspection issues — within the inspection contingency period
- Financing failure — if you cannot secure a mortgage (financing contingency)
- Appraisal gap — if the home appraises below the purchase price (appraisal contingency)
- Title defects — if title search reveals unsolvable problems
Using Earnest Money Strategically
In Indianapolis’s competitive suburbs, earnest money is a negotiation tool:
- Higher deposit = stronger signal to sellers, can help win multiple-offer situations
- Shorter contingency windows = also attractive to sellers, but increases your risk
- “At-risk” earnest money = extremely aggressive, only recommended in specific situations with guidance from Beau
Beau will walk you through the right earnest money strategy for every offer you make.
Frequently Asked Questions
Ready to Make a Move?
Get personalized guidance from Beau Benjamin, your Indianapolis REALTOR®.